Will Agricultural Development Bank ever find a strategic partner?

ShareSansar, March 10:

The much hyped hunt for a strategic partner for Agricultural Development Bank Limited (ADBL) is beginning to look like a plan that was dead on arrival.

The feverish pace at which things were conducted in the beginning and the way the matter was pushed under the carpet just as suddenly, raises serious questions about the intention of the major decision-makers in the whole process.   

As part of an agreement signed with Asian Development Bank, ADBL was required to seek out a strategic partner and divest 31 percent government stake—out of the total 51 percent--in the bank by September 2014. (The remaining 49% stake is held by the members of public). The deal was purportedly aimed at helping ADBL improve its management and performance with the help of a strategic partner.

However, after spending a huge amount of money on due diligence audit and the marketing efforts in the name of finding a strategic partner, the consultant company Baker Tilly International and its local partner Dev Associates suggested that finding a strategic partner would be difficult in view of the two criteria in the request for expression of interest (REOI): i) Prospective partners would be allowed to hold a maximum of 30 percent of the shares and ii) only banks and financial institutions (BFIs) could apply.

Nepal’s Bank and Financial Institution Act (Bafia) permits only foreign BFIs to invest in Nepal’s BFIs.

The suggestions provided by the consultant company were already writ large. It was hardly any secret that the Asian Development Bank had itself urged the government to divest only 30 percent of its stake, and that Nepalese banking regulations only allow foreign BFIs to purchase stakes in Nepalese BFIs, barring other type of finance companies.

Under the given circumstances, it can be safely assumed that the process of finding a strategic partner for ADBL hasn’t moved an inch after the due diligence audit which, too, may not remain valid by the time the process again moves ahead.    

So has the process of finding a strategic partner for ADBL completely stalled?

“No,” claimed the ADBL senior official, adding that the bank has been having informal communications with several international banks that have shown interest in becoming the strategic partner. “Any decision on the issue will have to be taken considering the views of multiple stakeholders, that’s why it is going to take some time,” said the official. “Even the interested companies study a lot factors before making a final decision.”

Last year, news reports claimed that 24 international banks had shown interest in becoming the strategic partner of Agricultural Development Bank. But most banks wanted 51 percent ownership--which would require the government to sell off all its stake in the bank--obviously, to have an upper hand in the bank’s management.

The government has given no hint as yet that it would be willing to divest more than 30 percent stake in ADBL. “No decision has been reached on increasing the size of divestment of the government stake in the bank,” said a senior official at ADB. The official hinted that it was highly unlikely that the decision would change in the future.